VT Gas: 'Not the company we want to be'

Bob Davis, left, and Diane Derrick of Hinesburg hold up signs as Eileen Simollardes of Vermont Gas Systems testifies before the Public Service Board in Montpelier on Wednesday. The board is considering whether to sanction Vermont Gas for a delay in notifying the board of an increase in the estimated construction costs of a proposed gas pipeline through Addison County. Davis and Derrick are landowners who are opposed to the pipeline crossing wetlands on their property.(Photo: GLENN RUSSELL/FREE PRESS)Buy Photo

MONTPELIER – A Vermont Gas vice president agrees, in principle, to a $35,000 penalty for delaying an announcement that a natural-gas pipeline from Colchester to Middlebury had spiked in cost.

"The penalty proposed by the department is fair," Eileen Simollardes, vice president for supply and regulatory affairs at Vermont Gas, told regulators at a hearing Wednesday morning in Montpelier. "The financial penalty is not the biggest deterrent here. It's the lack of credibility — and it's the black eye that the company got, or that I got personally."

She added: "This is not the company that we want to be."

Simollardes was the sole witness at the hearing about whether Vermont Gas had violated a state rule that requires companies to tell the Public Service Board when project costs rise more than 20 percent. The rule contains no specific time line for when the reporting should be done.

The hearing comes after a series of setbacks for Vermont Gas, including an announcement in February by CEO Don Rendall that the utility was dropping plans to expand its pipeline from Middlebury to the International Paper Plant in Ticonderoga, N.Y. — the so-called Phase 2 development. Phase 1 extends the pipeline from Colchester to Middlebury.

The Department of Public Service, which represents Vermont Gas ratepayers at the Public Service Board, says Vermont Gas waited too long to disclose the cost overruns. The department first recommended the $35,000 penalty last July.

Vermont Gas knew as early as January 2014 that the pipeline price tag likely would rise about 40 percent, Simollardes said. The numbers were firm in March after an independent budget review.

The Public Service Department urged the company to report the new numbers, Simollardes said, but Vermont Gas delayed the announcement until July, after the utility received final collateral permits and could provide a "more complete explanation of what was happening."

"The company did not believe, at that time, we were violating 5.409," Simollardes said, referring to the disclosure rule. "Nobody at Vermont Gas sat there and, 'We're violating 5.409, but we're going to let it go a little bit longer.' That was not the thought process."

The vice president spoke personally of anxiety and regret about the disclosure delay.

"I feel like I spent 20-some-odd years building regulatory credibility, and I just lost it in one fell swoop with that decision," Simollardes said. "It wasn't meant in any way to mislead. It seemed like the right decision at the time. And I don't think it was as I sit here now."

Diane Derrick, who owns land along the pipeline path in Hinesburg, held up signs during the hearing to suggest questions for the Public Service Board to ask Simollardes.

"Ratepayers are not as aware as they should be in my opinion of how much these cost increases are going to affect them," Derrick said. She added that Vermont Gas has "a lot of making up to do" in public trust.

Don Rendall, the new CEO of Vermont Gas, has pledged to rebuild the relationship with landowners under a recent "reset" of the project.

The first phase of the pipeline received regulatory approval from the Public Service Board in December 2013, and construction has begun. After two significant increases, the most recent cost estimate is $154 million, up from an original estimate of about $86 million.

International Paper had agreed to pay the entire cost of Phase 2, as well as part of the cost of Phase 1 of the pipeline expansion. When the price for Phase 2 increased from $99 million to $135 million, however, the multinational paper company pulled out of the deal.

Without the support of International Paper, Vermont Gas decided to cancel Phase 2 of the pipeline expansion, but insisted that Phase 1 still made economic sense, even as a stand-alone project.

Contact April Burbank at 802-660-1863 or aburbank@freepressmedia.com. Follow her on Twitter at www.twitter.com/AprilBurbank